27 2.1 Organisational Structures for Procurement Management

Objectives

By the end of this section, you should be able to:

1.  Explain where the Procurement function is commonly fitted in an organisational structure.

2.  Explain the basic approach to organising procurement activities in small and large organisations.

3.  Describe the advantages and disadvantages of centralised and decentralised procurement organisational designs.

Introduction

All organisations have to make provision for continuing activities directed towards the achievement of given aims. Regularities in activities such as task allocation, supervision and coordination are developed. Such regularities constitute the organisation’s structure and the fact that these activities can be arranged in various ways means that organisations can have differing structures, formal or informal.

When an organisation is very small, one or perhaps a few people will undertake all of the necessary functions and processes, and there is no need for a formal organisational structure. The head of the organisation will give instructions to employees, and there will most likely be no clear division of responsibilities. In Malaysia, we could find this example in small-sized, family-owned businesses. As the organisation grows, though, it will become increasingly difficult for a single person to control it. The need for a formal structure will then emerge.

Formal structure allows the responsibilities for different functions and processes to be clearly allocated to different departments and employees. With this clarity of responsibility comes the authority to control. The design of the structure should aim to implement the organisation’s processes as efficiently and effectively as possible, and to facilitate the working relationships amongst its various functions. Ideally, it must balance the need for order as a command structure with the need for flexibility and promoting creativity.

The size and activities of the Procurement function in a single business unit organisation will depend on a number of factors, such as the size of the organisation and the nature of its businesses. Obviously, in small and medium-sized organisations where the supply staff consists of only one or two individuals, the staff is expected to be flexible in terms of their capabilities and skills. In fact, in small companies, it is not unusual to see procurement responsibilities shared by a variety of individuals for whom procurement may even be a secondary responsibility. As the size of the organisation grows, the idea of assigning a professional the responsibility of procurement emerges and a separate function is created. Specialisation will occur as the organisation gets larger and can afford to hire additional procurement personnel. Figure 2.1 provides an example of a Procurement organisation in a typical mediumsized single-business unit company staffed by procurement professionals with clearly defined responsibilities in four general areas of specialisation: sourcing, materials management, administration and supply research.


Figure 2.1 Example of a typical Procurement organisation in a single location, medium-sized company

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